Increased appetite from sovereign funds and restructuring-driven asset sales will help drive a modest recovery in mergers and acquisitions (M&A) in the Middle East and North Africa (MENA), Omar Mehanna, the head of HSBC's regional advisory business, said. While global markets are teetering under the impact of a sovereign debt crisis in the euro zone and a slowdown in the US economy, a sharp fall in asset values may present an opportunity for these cash-rich funds with a mandate to invest their state's hydrocarbon revenues, he said. "Yes, the global picture is pretty bleak, but for sovereigns that are cash rich, they will certainly assess opportunities and this could prove to be an opportune time to deploy some of that capital," he noted. M&A in the MENA region hit a rough patch in the wake of the financial crisis as an era of leverage-led buyouts waned and several high-profile investments suffered heavy losses. Year-to-date, deal volumes in the region have totalled around $40 billion but may see a gradual improvement next year, Mehanna said. Thomson Reuters data show M&A fee income for investment banks stood at $280.8 million in the first half of 2011, down nearly 30 percent from the same period last year. Mehanna said he expects further consolidation in financial services in Gulf states such as Bahrain and Qatar. Earlier this year, Qatar's regulator asked conventional banks to close their Islamic banking operations. In August, International Bank of Qatar (IBQ) sold its Islamic banking retail operations to Qatar's Barwa Bank. In Bahrain, Bahrain Islamic Bank and smaller rival Al Salam Bank said they were in talks on a merger which would create a $4.5 billion entity. Strong fundamentals in sectors like oil and gas should foster both inbound and outbound M&A, the executive said, noting HSBC has "a high-quality deal pipeline" without giving specific numbers. "There is no room for complacency as the risk of execution and ultimately deal completion remains." Sovereign funds such as the Qatar Investment Authority (QIA) and Abu Dhabi Investment Authority (ADIA) – main allocators of state capital in the region - were relatively quiet in the first half of the year.
